Kingpin of the Big-Time Loan

By STEPHANIE STROM

Published: August 11, 1995

Correction Appended

When it comes to the multibillion-dollar loan business that is the spine of the current mergers-and-acquisitions boom, one bank and one banker -- Chemical Bank and its hard-driving loan syndications chief, James B. Lee Jr. -- rule the roost.

Mr. Lee's latest task, shared with bankers at J. P. Morgan & Company, is to raise $7.5 billion to finance the Westinghouse Electric Corporation's purchase of CBS Inc., a deal that lacks broad support from Wall Street and the investment community.

But no one doubts that Mr. Lee will get the job done. This year alone, he has helped corporations raise more than $124 billion, and investors are clamoring to buy more loans. Moreover, Westinghouse is prepared to pay lenders a fat fee in return for a commitment to finance the $5.4 billion deal and refinance about $2 billion of old debt.

Chemical typically arranges about two-thirds of the corporate loans of $5 billion or more made a year, and has almost a quarter of the total market. Given the bank's choke hold on the big-time loan business, Mr. Lee has the ability to "jam" other lenders -- threatening to cut them out of future syndications if they decline to participate when he needs their help.

"He's got this gosh-golly-gee manner, but he's sort of unremitting about his business," said Stephen A. Schwarzman, president of the Blackstone Group, an investment and merchant banking firm that is a longtime client of Chemical. "He wants to win, has to win, wants to push, has to push. He never lets up."

Still, while Chemical's dominance seems rock solid, the rules of the game are changing. Savvy new players -- Merrill Lynch, Lehman Brothers and Donaldson, Lufkin & Jenrette, the Equitable unit -- have started their own loan syndication businesses; last year, Merrill Lynch picked off seven deputies from Chemical's loan syndication group. "As you wind the clock forward, we will be a very significant competitor," said Jack Yang, one of the bankers who jumped to Merrill.

And banking companies like Nationsbank and BankAmerica are using aggressive pricing tactics in an effort to unseat Chemical. Nationsbank recently floated $2.45 billion in loans for Wal-Mart Stores Inc. with the lowest fees and interest rates that lenders can remember.

The competition has pushed profit margins to their lowest levels since the late 1980's, and restrictions on borrowers to protect lenders from credit risk have become more and more flimsy.

Some say those factors, combined with Mr. Lee's drive for market share, will ultimately lead to the downfall of Chemical's loan syndication business, which generates only a small portion of the bank's profits but does much to enhance its profile.

"It's not necessarily the be-all and end-all to be the biggest in the business because that implies huge balance sheet usage, which in turn implies greater risk," said Chad Leat, head of the loan syndication business at Chase Manhattan. "That should temper any institution from thinking domination is the only measure of success, although leadership is important."

Mr. Lee, who has been wooing potential investors for the Westinghouse deal for the last two days, said that while market leadership was important, it was not his primary goal. "If market share was your only goal, then you would probably compromise standards along the way," he said. "If we had done that over the last 12 years, we wouldn't be where we are today."

Nonetheless, critics contend that Mr. Lee's drive to top the charts has left Chemical holding $400 million of a $1 billion loan to Dreamworks SKG, the start-up entertainment company of Stephen Spielberg, Jeffrey Katzenberg and David Geffen. The bank expected to sell virtually all the loan to investors, but its pricing and structure, even after several revisions, made it unpalatable to most traditional buyers.

The $425 million loan syndication that Chemical managed in April 1994 for the London Fog Corporation, the raincoat maker, also made some investors unhappy; eight months later, the company could not make its payments.

These were rare stumbles in Mr. Lee's breathtaking career. Usually, the loans he shepherds are more like Chemical's syndication of a $23.5 billion refinancing for the General Motors Corporation, and an $8.3 billion loan package for Time Warner. The G.M. plan was one of the biggest corporate loan packages ever.

"He always is looking to make sure the key people at the client company are pleased with the outcome," said Richard J. Bressler, chief financial officer of Time Warner. "He's willing to accomplish whatever it takes to make both sides happy, even if it costs something to Chemical in the process, because he believes in long-term relationships."

Many bankers say Mr. Lee may even win the business of the Walt Disney Company, which has traditionally gone to Citicorp. Disney will need to borrow about $10 billion to finance its purchase of Capital Cities/ABC, a client of Mr. Lee.

Deals like those make the Dreamworks debacle seem like a mere hiccup, and Mr. Lee, who is 42, seems to have lost no political capital at Chemical. He retains the strong backing of his longtime boss, William B. Harrison Jr., Chemical's vice chairman.

Correction: August 19, 1995, SaturdayAugust 19, 1995, Saturday An article in Business Day on Aug. 11 about the dominance of Chemical Bank in the loan syndication business misspelled the surname of a former bank executive. He is Jeff Colquhoun, not Calhoun. An article in Business Day on Aug. 11 about the dominance of Chemical Bank in the loan syndication business misspelled the surname of a former bank executive. He is Jeff Colquhoun, not Calhoun.